The path and ultimate destination of interest rates in coming months will partly depend on how quickly -- and how far -- policy makers want inflation to cool and how much pain they’re willing to put the economy through to achieve that. 

The personal consumption expenditures price index -- the Fed’s favored inflation gauge -- rose 6.3% in April from a year earlier, more than three times the central bank’s 2% goal. Stripping out volatile food and energy costs, core prices increased 4.9%.

Ethan Harris, head of global economics research at Bank of America Corp., said the Fed would probably be willing to compromise and accept a plateauing of inflation at 3%, with the idea of addressing the overshoot of its target gradually over time. That would allow it to avoid pushing the US into a downturn.

“Recall that the great inflation fighter Paul Volcker backed off with inflation down to 4%,” Harris said.

Former International Monetary Fund chief economist Olivier Blanchard bemoaned the “screw up” by the Fed and other central bankers in allowing inflation to get out of control.

Blanchard, now a senior fellow at the Peterson Institute for International Economics, said that central banks should stop tightening policy when inflation drops to 3% and set that as the new price target, rather than risking a recession by pushing it down to 2%.

Blinder said the Fed has to balance two competing risks.

The longer inflation stays elevated, the greater the chance it becomes entrenched in the economy. That’s what happened in the 1970’s when Burns was Fed chair and it’s the primary reason why Volcker subsequently had to put the economy through such a wringer to get inflation down.

But overly aggressive action to tackle persistent price pressures carries dangers as well, said the Princeton University professor. It could push the economy into a very severe recession that sends unemployment skyrocketing.

Deutsche Bank economist Peter Hooper, who was among the first on Wall Street to forecast a recession, said it would be a “Burnsian mistake” if the Fed backed off from its 2% price target. And that’s a mistake he said that Powell doesn’t want to make.